First Connecticut Bancorp's (FBNK) CEO John Patrick on Q4 2015 Results - Earnings Call Transcript

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First Connecticut Bancorp, Inc. (NASDAQ:FBNK)

Q4 2015 Earnings Conference Call

January 28, 2016 10:30 AM ET

Executives

Jennifer Daukas - Investor Relations

John Patrick - Chairman, President and Chief Executive Officer

Gregory White - Executive Vice President and Chief Financial Officer

Kenneth Burns - Executive Vice President and Director of Retail Banking

Analysts

Travis Lan - Keefe, Bruyette & Woods, Inc.

Laurie Hunsicker - Compass Point Research and Trading

Operator

Good day and welcome to the First Connecticut Bancorp Fourth Quarter 2015 Earnings Conference Call and webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I’d now like to turn the conference over to Ms. Jennifer Daukas, Investor Relations Officer. Ms. Daukas, the floor is yours ma’am.

Jennifer Daukas

Thank you Mike and good morning everyone. Before we begin with our presentation this morning, we’d like to remind you to read our Safe Harbor advisement and forward-looking statements on our earnings announcements. Forward-looking statements by their nature are subject to risks and uncertainties. Certain factors could cause actual results to differ materially from expected results. Our comments today are intended to qualify for the Safe Harbor supported by that advisement.

Thank you and now here is John Patrick, our Chairman, President and CEO.

John Patrick

Good morning everyone. Thanks for listening to our call. We appreciate you calling in this morning on this busy day. As you all know we released our earnings last night and I'm pleased to report that for the year we had good results and had good annual revenue growth in 2015. In the fourth quarter we capped up another good year of double-digit organic loan and deposit growth.

And I think it’s important to note, if you take a look there or during the several quarters of the year. We really repositioned and strengthen our balance sheet to put it into make sure that we’re adequately protected and as continuing low interest rate environment on an ongoing basis. In the quarter there are three things I want to point out and now let Greg give a little bit more color relative to a couple of them.

First of all we took a charge as you know relative to the valuation allowance on deferred tax asset in 2011 when we went public. We created the community foundation and we had the deferred tax asset that was established at that point in time. If we take a look back to when we went public and established that foundation and look at our projections relative to the tax consequences.

Everything is really we’ve actually performed ahead of where we anticipated and projected we’re going to be, accepting one area and that’s in the margin and while we didn't anticipate or build-in interest rate changes during that period of time to continue low interest rate environment as well as kind of looking forward to say well we got a interest rate increase in the fourth quarter from the Fed.

We continue to believe that and as you can see we continue to be in a very, very flat yield curve, we’ll continue to have pressure on the margin and we thought it would be prudent to take the charge on that the deferred tax asset in the fourth quarter. And additional we had a little bit more marketing expense and we usually do I would indicate that this is one-time type of increasing marketing, we want to take advantage of some opportunities that we had from a marketing perspective.

But I think more importantly when we determined our strategy to move into Western Massachusetts and establish ourselves from a commercial banking and a residential platform and we said we are going to add two additional branch locations in that marketplace. We opened both of those up in the fourth quarter; we’re very pleased right now with the results our deposits in those two branches exceed $60 million as of right now.

And when you go into a new market especially that one that really didn't have a big name recognition relative to Farmington Bank was. We thought it was prudent to spend some upfront dollars and to be able to make an investment that we think or it’s going to payback significantly relative to our branding name recognition and reputation in that marketplace.

We still firmly believe that there is continues to be good opportunities with some of the disruption in that marketplace from a variety of different players and we’re trying to capitalize and we’ll continue to capitalize on that. But in order to get off to a good start we thought it was prudent to again take advantage of some marketing buys and to come out of the gate pretty fast in that marketplace which we did.

And then the other piece I’ll just touch on is that, we had a little bit of an increase also in our reserves in the fourth quarter. I think as previously communicated to you, we had a one credit that was an asset-based transaction that with the participation that we’re following through their bankruptcy in a challenging cycle, it was on non-accrual and then in the fourth quarter we took a charge on a piece of that.

So that was really the three challenges I think from an earnings perspective that surfaced in the fourth quarter. Overall, again when I take a look at where we’ve come from and our strategy relative to establishing new retail branches in the marketplace for us. Itcontinues to pay off and I think that's indicative in reflective in the deposit growth that we had during the year and specifically in the fourth quarter as during the year we reduced our loan to deposit ratio in a meaningful way.

And as we've indicated in the past, as we’ve looked toward 2016. A) Number one, we believe that and we see day-in and day-out that credit has continued to deteriorate and decline relative to underwriting standards. We have a very, very high quality portfolio, which we are going to maintain. So because of the frothiness in the marketplace, we wouldn’t anticipate that possibly we’ll be putting out as many loans as we have in the past several years.

Then secondarily, we also talked about the fact that we need to balance our loan growth with our deposit growth and our funding. Again, we've done some things in a very meaningful way to the balance sheet over the last three quarters and we’ll continue to do so. So we anticipate that we are going to grow our deposits and loans and walk step with each other to continue to reduce that loan to deposit ratio.

So with that, let me just turn it over to Greg, so he can add a little bit of color possibly through the deferred tax asset and some other things on the financials. Greg?

Gregory White

Thanks John. Good morning. We did have a couple of sizable non-core items during the quarter, which are reflected in the non-GAAP tables in the back of the press release. The first one, John mentioned. We had a $768,000 valuation allowance against the deferred tax asset, which was created. We had a contribution expense due to funding our foundation in 2011 after our IPOs. We had a loss carry-forward there.

The ability to recapture that deduction expires at the end of this year. So obviously at this point, we don’t think we are going to have the taxable income to fully utilize that deferred tax asset. Historically, we’ve looked at the use of wholesale leverage in order to get our taxable income up and kind of some other non-core transactions, brand sales and that type of thing if we needed.

We don't think any of those are prudent at this time, especially the wholesale leverage given the level of interest rates and where our investment yields are today. The other kind of significant non-core item, we did have [$379 million] income related to the passing of a former employee.

Other comments on the quarter, our net interest income was down a little over $300,000 during the quarter. We did sell 83 million of fixed rate residential loans out of the portfolio in the third quarter most of those were sold right towards the end of the quarter.

So in the fourth quarter, we actually have our interest income on our fixed rate residential portfolio was down about $600,000 compared to the third quarter. It was $587,000 to be exact. We also did have an increase in our cost of funds during the quarter in part related to our expansion efforts in Western Mass, but also we did extend some federal home loan bank borrowings for interest rate risk management purposes.

On the expense side, you will see our salaries and benefits increased quite a bit quarter-over-quarter, 426,000 quite importantly our salary expense was actually down in the fourth quarter compared to the third and that's despite having opened two branches during the quarter. So meaning all that increase was related to the incentive and employee benefit compensation, but again salaries were actually down quarter-over-quarter.

And then as John mentioned also our marketing expenses were elevated a little bit. During the fourth quarter they were about 330,000 higher than the third quarter which was already above our run rate. And then lastly, John did touch on research as well so certainly some expense aberrations a little bit during the quarter.

I’ll turn it back to John.

John Patrick

Thank you. That said, again I am pleased where we positioned balance sheet during the year. The improvements that we have made it’s been on track with what we’ve said, we are going to be strategically - our focus continues to remain on taking in the deposits to making good loans then growing our franchise in the market that we believe will be beneficial for contiguous growth and to continue to build franchise value.

Again, the other thing I think that we've always been focused on here is to make sure that we continue to grow tangible book value which we have and which we’ve done and as it relates to and will focused for the future and today as relative to continuing that growth of tangible book value and earnings per share.

So with that, I will open it up for any questions at this point in time.

Question-and-Answer Session

Operator

Thank you sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have comes from Travis Lan of KBW. Please go ahead.

Travis Lan

Thanks, good morning everyone.

John Patrick

Good morning.

Gregory White

Good morning.

Travis Lan

With salaries being down in the quarter as you referenced Greg, would you expect total comp to kind of fall back in the first quarter?

Gregory White

Yes.

Travis Lan

Okay. In terms of your outlook…

Gregory White

Yes, I mean typically you have the high payroll taxes in the first quarter, but that will be more than offset by some of the high expenses we had in the fourth quarter.

Travis Lan

Okay. And obviously I mean the big part of the story I think has been sort of relative expense stability I mean obviously you added kind of - the Western Mass expansion this year so that weight on it, but how do you kind of think about the trajectory for expenses from this point going forward?

Gregory White

I mean you want to think Travis is something we are very focused in on. We truly want to keep expenses. We are focused on positive operating leverage, so we want to make sure that we’re growing revenue at least 2% greater than expenses on an ongoing basis if not more.

We’ve already indicated that in 2016 we’re going to open up two additional branch offices and so I wouldn’t see anything beyond that. We actually this month close one of our offices and so we’ll see the benefit a little bit you know the [new branch office] some of the expense on two new branches that we are opening this year.

And as we take a look at things obviously we've got a formula relative to how we are opening branches, the size, the cost of that down and what I've asked Ken Burns, our Chief Retail Officer to try to do this to see if we can open up, but we want to try to open up those offices with a minimal number of adds to staff is that a way that we can reallocate resources to be able to do that.

We did that a couple of years ago when we open Rocky Hill very effectively and we have really a strategy around our de novo branches and so. If we can continue to do that that will reduce the cost there. I would anticipate that. We are adding additional cost to our infrastructure. We talked about that, we believe we have a very scalable organization relative to that.

We strengthened and continue to strengthen on ongoing basis or operational risk management and today we've talked about before and said I continue to feel very, very strongly that we are have a very good relationship with our regulators. We are regulatory risk management best practices company and we have the tools some things in place from a customer service perspective and from an information technology perspective.

Couple of things that we’re doing that really I think that will continue to enhance our growth and our businesses. We have some and there of that expense in the fourth quarter. Our EMV, the Chip Cards replacing all our debit cards with our Chip Technology and in addition I know in February 2 we’re formally rolling out Apple Pay. So we have those technologies out there. So we have all that available to our customers and we continue see good incremental growth on the technology side relative to that branch expansion.

Travis Lan

Got it. Okay, that’s very helpful color. The outlook for deposit cost obviously the promotions and I know you said you extended some Home Loan Bank advances in the quarter. Just focusing I guess more on the deposit side. Are you seeing competitive pricing pressure in the market and how do you kind of think about the outlook for deposit costs?

Gregory White

Well, I think we do you see anyone talk about competitive pressure it’s competitive and so we don't see anybody out there today kind of with crazy rates and that type of thing. And so our strategy has worked over the 10, 12 de novo branches that we've gone into and opened up that we utilize some - different types of money market specials to go into a marketplace attract and cross-sell those customers.

Again, we look at the branches and customer acquisition vehicle not necessarily customer service vehicle, customer servicing vehicle that's done through technology call centers and a variety of other things, but you need to get the customers in the door and quite frankly to setup an International or National Internet bank or that type of thing as much as lot of people talk about that for us that we don't see that strategy makes sense for us.

And so as we continue to do that we will continue to deploy the strategy of having money market specials in the marketplace. But on an ongoing basis we really are seeing overly aggressive pricing, what we see is that time as Banks need liquidity for a variety of other things they may go into the marketplace with a special other than that it just remains just very competitive.

Travis Lan

Gotcha. Okay and just two more. The first is you’ve talked a little bit about the balance sheet repositioning of the last year kind of say yourselves up from an interest rate risk perspective. Can you talk about where you stand today from an interest rate risk perspective specifically how you think you're exposed to rising short-term rates or occur flattening or…

John Patrick

Can get any flatter?

Travis Lan

I mean you know don't ask.

John Patrick

I know well. I mean that’s why we take a look at it I’ll let Greg answer the question. But quite frankly I look at things today and for Fed rates there is another quarter. I think we’re heading [indiscernible]. We are close to that last Friday, you know 10-year drop below 2% and so as much as we benefit from a rising interest rate environment we have to just look at things on the long end and that’s again why we think that what we've done over last several quarters and - Greg has the numbers, but it’s been significant reduction in fixed rate loans and replaced by variable-rate production. During the course of the year will help us out and it has improved our [indiscernible] position in the third quarter as well as the fourth quarter. But Greg - give little more color.

Gregory White

Yes, our interest rate risk position today is definitely better than it was a year ago even six months ago, I mean basically a parallel shift in the yield curve there is a lot of assumptions going into this answer but we are comfortable, every quarter is about $0.04 to $0.05 in EPS for us. Again a lot of assumptions in that, but that's not a manufactured number there or made up number.

And then we are a little bit barbelled which would as far as the flattening curve we do have a lot of immediately repricing assets, which would certainly help us in that scenario as well and I think our swap, commercial swap loans grew $70 million or $80 million during the calendar year last year, so we do continue to forgo current income $80 million. Yes, so we do continue to look forgo current income to prudently manage our balance sheet including the extension of borrowings, which we've been doing for about 18 months now and continue to do.

Travis Lan

Got it. Okay that’s helpful. And then last one, is just why the share count go up in the quarter and then how do you guys think about the buyback?

Gregory White

The share count I don’t have in front of me - are you talking basic?

Travis Lan

No, diluted.

Gregory White

Yes, diluted would be affected by the higher stock price, but also our ESOP shares back into outstanding shares on a quarterly basis.

Travis Lan

Okay. And the buyback.

Gregory White

If we don’t ask that that would buybacks, but the diluted share count would definitely go up because of a higher average price on our option on the diluted share count.

Travis Lan

Last one talking about the buyback.

Gregory White

I am sorry. Yes, I was saying unless it’s offset.

John Patrick

No, how do we think about buybacks?

Gregory White

Oh, the buybacks. I mean certainly, let John comment after I do, but we do watch - you can see our capital trends, our capital actually went up this quarter as we slow our growth down we certainly - we don’t want to get to the point where we buyback our stock and have to issue some debt, we don't make enough money for that math to work. So we do watch that. And with that said, our capital ratios are going up. We will certainly look to deploy capital prudently for the shareholders either buybacks, dividends or combination beyond what we need to use.

John Patrick

Yes. And I’d just echo what Greg said, we always talked about prudent capital management, we believe that while we're growing loans at $200 million plus a year that would better return than just buying back our shares during that time and to manage capital down the road.

As we slow the loan growth down just a little bit because to again bring our loan to deposit ratio a little bit more in line which I think we’ve made terrific progress there year-over-year and even quarter-over-quarter. We will use based upon where the stock is trading. We will use capital deployment to enhance shareholder value utilizing buybacks.

Travis Lan

Got it. Thanks guys.

Operator

[Operator Instructions] Next we have Laurie Hunsicker of Compass Point.

Laurie Hunsicker

Yes. Hi, good morning. I’m just wondering if we could go back to non-interest expenses here, on your salary and benefits line. Can you just break out press a little bit the difference between the $9.7 million that you reported this quarter and the $9.3 million last quarter?

Gregory White

Yes. I mean again salaries were down a little bit quarter-over-quarter so the rest of it was incentive comp including bonus accrual the way our formula has was worked there. And then on the benefit side there was multiple things, everything from HSA expense, contribution expense for benefit plans or ESOP just the fact that our share price was higher during the quarter affected that expense. We add some little things in there, tuition reimbursement they happen to have a bad quarter and that type of thing.

So, but again I think importantly salaries were - when I say down they weren’t down materially. With that said, we opened two branches so we were overall satisfied with that, but…

Laurie Hunsicker

This is a different way. As we think about that $9.7 million as we rolled to March, so in March you are going to have spike on some of these others. What is that $9.7 million look like?

Gregory White

Yes. I mean, as I mentioned earlier. Right, payroll taxes will be higher, but will more than offset that increase and I would expect that number to come down. I don’t want to say significantly, but that will be a lower number.

Laurie Hunsicker

Okay. And then your - and I mean I guess…

Gregory White

One other thing to they’re affected by is deferring salary with our mortgage banking, on the loans close we have a pretty big deferred number each quarter and so when production - when closed loan slow down which they did in the fourth quarter compared to the third we defer a lot less salary. So that actually was a pretty significant number during the quarter as well little bit of a seasonal answer there, but again it did have a significant impact. It’s a big piece of that for 26 like maybe approaching us over to that.

Laurie Hunsicker

Okay. And then your Longmeadow branch that opened in November so we didn’t see a full quarter impact to that, so presumably that would still see a drag on the expense line?

John Patrick

Yes. You actually did Laurie because we hire those people ahead of time make sure that they are trained and ready to go.

Laurie Hunsicker

Got it, okay. And then you mentioned a branch closure in January so that takes your branches down to 22, is that correct?

John Patrick

23.

Laurie Hunsicker

23, okay. So you are now in 23, okay. And then you’ve got two more the Manchester and Vernon do you have a better timeline in terms of a month when those are projected to open?

Gregory White

630 and 930.

John Patrick

630 and 930.

Laurie Hunsicker

630 and 930. Okay, great. And then the fact that you got $60 million in deposits, John that you mentioned.

Gregory White

Yes.

Laurie Hunsicker

Wow, that's a great number. What is a mix on those deposits and do you have a cost on those deposit and is that something that you're looking to potentially replicate with Manchester and Vernon?

Gregory White

Obviously Laurie, but typically when we go into a market so we have some money market specials and things like this so I don't have the direct cost on there because quite frankly we’ve seen a nice mix of both money market accounts, demand deposit accounts and I think it’s importantly we a year earlier hired the commercial lending team, they got traction and we bought a lot of them and there's some of the C&I customers that we booked over the past year that, well it opens up the ancillary accounts and cash management accounts to enhance those during the quarter.

We also have started to see some penetration from an operating perspective from a couple of municipalities there which just kind of open accounts really not yet funded. So there is a nice mix within there. When we open a new branch typically what has happened is we get to a $20 million to $25 million deposit base within about six months. So we’re ahead of the curves there with these two offices. Again, we are very pleased so I would anticipate that Manchester and Vernon would be very similar to our experience in Connecticut with getting to $20 million to $25 million range within the six-month period.

The other thing with those two offices while we have opening promotions and campaigns and things like that I wouldn't anticipate because they are contiguous to markets to where we are and where we are doing some business with commercial customers that the amount of marketing that we did in Western Massachusetts really to put our stake in the ground up there is going to be necessary.

Laurie Hunsicker

Okay, great. That leads me to my next question. I know you already made comments around this, but the 763 and marketing expenses that you said was outsized, what does that look like in the first quarter?

Gregory White

I don’t what it looks like. Our run rate is 400…

Laurie Hunsicker

Okay. And that would fairly be the continued run rate throughout the duration of the year?

Gregory White

Yes. I would guess that would be my guess at this point in time. We tried to take advantage of buying opportunities also when we see them. So if there was some type of aberration in the marketplace that we could take advantage of it. I would do it, but I don't see that happening especially in an election year where advertising rates are going to continue to go up. So we look for alternative ways to market in those markets.

Laurie Hunsicker

Okay. And then within other expenses that was a big jump to linked quarter as well that’s $2.7 million. Was there something else in there that’s nonrecurring?

Gregory White

Yes. I mean that was - that change was mostly related to a negative REO expense, meaning reduced expense by I think it was 560,000 in the third quarter.

Laurie Hunsicker

Okay. Wait, wait, wait. So in fact it’s linked quarter, okay gotcha. Okay, so I mean as we think about fourth quarter expense your kind of round number is at about $15.5 million for the quarter plus maybe whatever benefit you have from the branch closing. Is that a good way to be thinking about expenses and obviously they go up with the opening of the new branches later in the year?

Gregory White

Yes, I mean we don’t like to give too much. That’s not on reasonable given everything we’ve talked about.

Laurie Hunsicker

Okay, great. And then tax rate will probably still sit around 28% or so.

Gregory White

Yes.

Laurie Hunsicker

Okay. And then…

Gregory White

Just about over time still a little bit.

Laurie Hunsicker

Okay. And then I mean earning assets were basically dead flat. How do you think about loan growth going forward? Can you help us out a little bit as you obviously are opening these branches, we should be seeing the same trajectory on the growth side and it just really didn't materialized and I realize you have the loan sale, but how do we think about that in 2016?

Gregory White

Yes. I think we’ve talked about this a little bit before that we’re thinking about 150 in 2016 that we are looking to grow deposits around ahead of that and so one of the things that when we talk to shareholders and others out there, we had loan to deposit ratio that was in the 120s.

We brought that down through effective liquidity management as well as growing our deposit base. We believe that going into 2016 we are going to continue to try to bring that loan to deposit ratio down, but also we believe it's a good time because of the frothiness that we see in the marketplace.

For example, big community, community Bloomfield, Connecticut outside Hartford, but when you see apartments building selling it $200,000 a unit there’s something wrong with those numbers. And even in a commercial real estate side when you’re seeing five caps and four caps and six caps as we’ve talked about Mike and Cathy and I you know we’ve never foreclosed on a five cap rate yet.

And so we believe that with the frothiness that’s in the marketplace we’re not going to lend it - credit quality you’ve seen the red flags coming out of the regulatory from the regulators we’ve worked hard and diligently over the last several years to look at our asset quality.

To make sure that in any downturn we believe that we’re going outperform others and so we just think it’s a good time kind of say grow $150 million on the loan side, do more than that on the deposit side bring down the loan to deposit ratio. Now if we can grow deposits in a faster rate than we that might be budgeted then we’ll grow loans a little bit faster than that.

The other thing to - as we have a very robust municipal deposit business, which is we manage on an ongoing basis their relationships. We don't go out and bid for money [with house] we just don't do that. So these are the established relationships that we have that we build relationships over time many of them are their core operating accounts as well as we provide other ancillary services to Boards of Education, Fire Districts, Water Districts that type of thing.

If we grow that business we’re not going to lend against that business. So we want to really drive our core deposit base from a core base to make sure that loan to deposit ratio is solid going into the next couple of years.

Laurie Hunsicker

Got it. And I am sorry something else you asked earlier the - rather that you mentioned earlier the municipalities that came in with the 60 million of new deposits what was the total round numbers of that 60 million from municipalities?

John Patrick

That was very minor, I mean those municipalities just kind of - they setup their accounts and then they fund them as they go forward by bid.

Kenneth Burns

This is Ken Burns. We right now do business with 79 municipalities and entities in the State of Connecticut…

John Patrick

Yes, Western Massachusetts.

Kenneth Burns

In Western Massachusetts, the $69 million growth was both new relationships and it continually enhance some current relationships, it’s pretty much quite across the board between the non-interest bearing, new operating accounts and investment accounts. That answers the question.

Laurie Hunsicker

Yes, that’s helpful. Okay and then so you mentioned $150 million potentially of targeted loan growth and as we look at where you’ve been growing I mean commercial real estate even though you mentioned the frothiness is that still going to be a focus for this year?

Gregory White

Yes, I think if we see the right opportunities we will continue to do that we have a very good team of commercial real estate lenders. And I think nicely you’ve seen during 2015 our C&I business has continued to grow and that’s a focus - part of our deposit growth over during the year last year we continue to have a significant piece that was on the cash management and business side.

Laurie Hunsicker

Okay.

Gregory White

And those deposits typically lags below, so yes, we are focused on growing C&I commercial real estate is part of that and again we have a nice book of commercial real estate business from that perspective.

Laurie Hunsicker

Okay. Great, okay and then okay so as we think about loan loss provisioning into your point this quarter that the 776 is primarily related to the bankruptcy credit. There was $293,000 charge-off related to that is that apples-to-apples in terms of what you put in the provision that was extraordinary. So in other words if we look at the 776 we assume a slower growth rate we could back it out and say you know your core loan loss provisioning round numbers is 480 to 500 a quarter?

Gregory White

Is how much a quarter again?

Laurie Hunsicker

Maybe 480,000 to 500,000 are set for quarter, was that out of the realm?

John Patrick

Yes, I mean it depends, obviously we have a model that we put it through Laurie that has economic factors and a variety of other things, but that's not it's not that. I don't think that far maybe a little bit higher than that because of the loans that we put on are not a season, so they take a little bit more relative to the loan loss provisioning model.

Gregory White

As we increase our focus on commercial that typically would take a little more provision expense and the resi growth.

John Patrick

And the resi growth, you are right.

Laurie Hunsicker

Okay, great.

Gregory White

With that said, it will be lumpy, but that's your numbers are.

Laurie Hunsicker

Okay. And then I just want to go back to a question that Travis asked, which was on share buybacks. I mean across the board we’ve seen companies big, we’ve seen companies small. We normalized our earnings, you're so attractive here, you are trading surplus to book. How come you guys aren't being more aggressive? Can you just address that a little bit more, is it a price point obviously you mentioned capital, but you still have a cushion. Help us understand a little bit how you approach that?

John Patrick

Yes, so it’s indicative of the stock price Laurie, I think at a point in time. Within the fourth quarter if you take a look at where we are trading, it was a lot higher than where we are today. So I would tell you that where I look at us today is more attractive from a buyback perspective than it was early in the fourth quarter.

And then I would also take a look and say, we believe that using capital to growth core organic business in our markets was a better use in return on capital then it was just buying back share that say 110, 120 of tangible book value. As we take a look out regarding new capital requirements, Basel requirements and those types of things. When we look at and say okay let's buyback all our shares and just do that and then we have to go out and do sub debt.

Well, when you do sub debt the first $150 million of loan growth that you have to have just pay for sub debt. So we’ll be giving away when you start to take a look at when we believe where you start to take a look at that your earnings start to become a lot choppier in future earnings despite looking that for a quarter or two.

And so our objective is always been long-term shareholder growth to manage capital prudently from that perspective. Where we are trading today, the volatility in the markets is much different than it was 30 days ago.

Gregory White

And Laurie, if you take a look on total risk based capital is going to be our constraint growth eventually the way our capital structure is. And that was coming down 30 to 40 basis points a quarter that went up last quarter because our strategy is moving down growth a little bit here.

So as I commented earlier, we didn’t want to buyback our stock to the extent, we either had to issue sub debt or limit our organic growth. So we are going to be watching that pretty closely here. The positive trends because we are making more money and obviously slowing the growth down a little bit.

Laurie Hunsicker

Great. Thank you very much.

Operator

Next, we have a follow-up from Travis Lan of KBW.

Travis Lan

Yes, thanks. So I think if we sort of summarize the call. It sounds like we’re looking at slowing loan growth, continued NIM pressure and then maybe stable season expenses. So without the substantial growth, what you see is the key drivers of EPS from maybe the $0.84 that you guys posted this year?

Gregory White

Yes. I mean I wouldn’t call the NIM pressure substantial from here. We do have the ability to add some interest rate risk given our position, which would be obviously profitable growth for us. But even if you do the 150 deposit funded there is a significant lift in interest income, where we have to keep tweaking away the fee income and have the expense discipline.

John Patrick

Yes. And I would tell you Travis, we also are very focused on operational efficiency in the organization going into we have been, but we continue to be for looking at that and continuing to look at that in 2016. How can we do more and grow the company and not add expense, not add bodies. I think as Greg said, maybe a little bit reflective in our salary account with max in the fourth quarter, but I think going forward that’s going to be a key driver.

And again, we’ll take advantage of opportunities as there are in the marketplace. We just see - we’re in Connecticut and Western Massachusetts and the rest of the country maybe doing great. But I think there was an article on SNL or some places. This morning maybe Bloomberg I’ve talked about manufacturing.

In our marketplace we do a lot of business with manufacturers there Connecticut is net exporter to both Canada and to Europe. The strength of the dollar affects to those folks and so well we don't see any deterioration of credit certainly sales and some of those things will slow down a little bit with some of those exporters. I wouldn’t say that the confidence is high in the Northeast as it is in the other parts of the country now.

Takeaway Boston and I mean everybody has their own [indiscernible] what’s happening and what’s going on in Boston whether it’s good, bad or different, but my meeting with the Fed and others they believe that there's a lot of over building in certain aspects and certain sectors of the marketplace. So to say we just think it’s a good time to be - we always have been prudent, but we are seeing duration expended, we are seeing covenants dropped.

When we see mutual banks that have never done a commercial loan in their life now getting into commercial lending and having double-digit commercial loan growth, we just say, I take a look at that and say I've been through the cycle before, I know what it feels like, I can't pin any economic indicator on it right now.

I should say this is why it's happening other than again looking at frothiness of cap rates and things like that, but we are going to stick to our discipline and we believe that we’ve made a significant investment in the Company and have this infrastructure its be able sustain, its be able to continue to grow without adding significantly to that infrastructure on a go forward basis.

Gregory White

Yes, and I’d just add I mean our earnings per share last year grew 35% compared to 2014, we certainly would expect that to slow a little bit on a core basis grew 37%, but the 35% is non-core. With that said certainly I would just add, our low share account relative to our asset size help us as we grow ROA we get a kind of share leverage multiplier there compared to some of our pear group.

Travis Lan

And that was actually my next question. So how do you guys think about I mean ROE has been running and kind of a 50 basis point range give or take. What’s kind of a longer-term or reasonable goal do you think for the institution?

John Patrick

Yes. We are trying to move that needle so if I take a look at ROA, ROE and tangible book value, our focus is on growing tangible book value and EPS. We grew this company in the lowest interest rate environment since the depression. And so again, I'll take the quality of our loan portfolio and we obviously going to see the quality through the downturn. So and some people will tell you well look here because you don't get paid for that at the end of the day.

That's how we grow and live and can sleep at night and so our focus is really on EPS and really tangible book value. We understand ROA and we believe that it matters at the end of the day and we recognize that. We need to move our ROA up and it is an indicator, but along the way we’ve been growing both sides of the balance sheet has a direct effect on the ROA and our focus as I said before is historically been - were priced off as tangible book value still today book value and in EPS.

Travis Lan

Got it. Okay, thank you very much.

John Patrick

Yep.

Operator

Laurie Hunsicker with Compass Point.

Laurie Hunsicker

Hi, thanks. Sorry, just have one more follow-up because I know you guys go five years from your IPO this year. The MRP expense savings that I believe is projected to start in September that round numbers is $2.7 million annually. Can you update us on your thoughts on that? Are we going to see that drop into the bottom line? Are you looking to spend that elsewhere? Can you just help us think about that piece?

John Patrick

Yes, the vast majority of that’s going to drop to the bottom line.

Laurie Hunsicker

Perfect. Thank you.

John Patrick

Yep.

Operator

Well at this time we are showing no further questions. We will go ahead and conclude today’s question-and-answer session. I would now like to turn the conference back over to the management team for any closing remarks.

John Patrick

Great. Thank you Mike. I appreciate it and I appreciate everybody taking the time, good questions today. We’re in an interesting environment. I think we are very prepared to continuing to navigate through this interest rate environment that we are in and the economic uncertainty and we appreciate your interest in our Company and questions you asked and we look forward to working with you in the future. Have a great day.

Operator

And we thank you sir and to the rest of management team for your time also today. Again the conference call is now concluded. At this time, you may disconnect your lines everyone. Take care and have a great day.

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